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Module 5
Life as a Homeowner
Your Obligations as an Owner
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A Note about Taxes and Insurance

Impound or Escrow AccountsMany home loan products require impounding for tax and insurance payments. So in addition to principal and interest, your monthly mortgage payment includes funds that go into an impound account (also called an escrow account) to pay for your property taxes and insurance. Your lender holds the money in the account and makes the payments from the account as they are due. (For more information about taxes and insurance, review Getting the Loan.)

Supplemental Tax BillsAlso note that in some states, a supplemental tax bill may be sent after the loan has closed based on a re-assessed home value based on the sales price of the home. This may increase your total monthly payments.

Make Sure You Budget for Taxes and InsuranceIf your lender does not impound your taxes and insurance, you must make sure that you budget for those amounts so you’ll have the funds on hand when the payments become due. Check with your lender if you are unsure whether your taxes and insurance are being impounded.

Heard on the Street: Have you ever refinanced a home loan? Why? edge
Mya, Age 38
“As a matter of fact, I have. When I first bought my house, I got an adjustable rate mortgage because I didn’t think I’d live there more than three years and I wanted my monthly payments to be as low as possible. But after a few years, I decided to stay put, and needed a better long-term strategy.”

Derrick, Age 51
“We refinanced to take advantage of a lower interest rate. It helped us lower our monthly home loan payments, which means we can put more toward paying off credit card debt faster.”

Linda, Age 30
“Yes, but it’s probably not why you think. With the growing housing market in my area, we’ve been really interested in getting into investment properties. We decided to take advantage of the equity we’ve built up in our home, so we refinanced and used the extra cash as a down payment on a rental property.”

Responses are not real-life accounts and are provided for illustrative purposes only.

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